Be prepared to be disconcerted – Motley's Fool

Lyftof (NASDAQ: LYFT) The long-awaited IPO has proven to be a disappointment for investors, with shares of the car pool specialist falling sharply since its stock market debut. Short sellers have accumulated in Lyft's stock, believing it to be overvalued. Analysts have not been nice to the company either.

This set a bad precedent for Uber, the largest carpool company in the world. Uber now plans to set the price of its IPO at a price of between $ 44 and $ 50 per share, according to a new filing, which would give the company a value of less than $ 90 billion mid-term. That goes from $ 48 to $ 55 that the carpool giant would have targeted earlier.

This announced downturn in Uber's IPO price is not surprising, as the company is struggling with a ton of problems.

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Uber figures are disappointing

One of the key lessons learned from the filing of Uber's initial public offering is that the company might not achieve profitability. "We have suffered significant losses since our inception, including in the US and other major markets, and we expect our operating expenses to increase significantly in the foreseeable future and we will not be able to maybe not achieve profitability ".

The Uber IPO cites several issues that could hinder profitability. For example, the company could enter a tariff war with its competitors or might have to offer better incentives to its drivers so that they do not pass to competition. Uber's IPO file indicated that a potential inability "to attract or maintain a critical mass of drivers" would make its platform "less attractive to users of the company." platform".

This is not the only challenge Uber is facing. In fact, his S-1 filing clearly reveals that the growth of the company is slowing down. Uber 's net business figure rose 42% last year, reaching $ 11.27 billion. This was much slower than the growth of its turnover by 106% in 2017. Similarly, the number of active users of the platform per month has only increased by 35% in the fourth quarter of 2018. This figure had already increased at a three-digit rate in the first half of 2017.

Data Source: Uber S-1 Ranking. Graphic by author.

This massive slowdown in the growth in the number of users is hurting the financial performance of the company. Uber lost nearly $ 1 billion in the first quarter of 2019 for a business turnover of about $ 3 billion.

Assuming that Uber maintains this pace of execution for the rest of the year, it could lose about $ 4 billion on revenues of about $ 12 billion. This would be about double the $ 1.8 billion lost in 2018. This is not surprising, as the company itself expects its operating expenses to increase due to the competitive challenges it faces. is facing.

Does Uber's valuation still make sense?

Uber initially hoped for an IPO valued at around $ 120 billion. Now that he plans to set the price of his IPO at between $ 44 and $ 50 per share, Uber expects a maximum value of $ 91.5 billion. The low end of this price range would place its valuation at about $ 80.5 billion on a fully diluted basis.

Uber was valued for the last time at $ 76 billion in the private market when Toyota invested in the carpool giant This gives the current estimated price range of the IPO a fairly conservative appearance. But since Uber's filings and recent results indicate a slowdown in the company's growth, many investors may conclude that its value does not even match last year's valuation in the private market. which caused the fall of the title.

Professor Aswath Damodaran, an eminent evaluation expert, of NYU Stern estimates that Uber could be worth between $ 58 and $ 62 billion.

Damodaran estimates that his rival Uber, Lyft, is worth about $ 59 a share, or just over $ 15 billion. Indeed, Lyft shares have traded near this level for several weeks. This is well below its introductory price of $ 72 per share.

Do not be surprised if the IPO of Uber goes in the sense of the word

Experts expect Uber's IPO to be one of the most important technology offerings of all time and the largest since. Alibaba Group became public five years ago. But Uber may well end up having a disappointing IPO, sharing the fate of his rival. Shares could collapse due to Uber's slowing growth and a potential increase in losses that would weigh on the minds of investors.